company sale

[Guest nipa]

A curent client sold their business May 2007. The company has a calendar year profit sharing plan. The company is still "active" for tax purposes, etc... Is it correct to assume the plan valuation/reporting can be done as of 12/31/2007 using prorated compensation/415 limits from January 1 - May 15th?

[Ron Snyder]

You imply that a corporation sold its business and terminated its employees as of 05-15-2007. A valuation must be done if assets have not yet been distributed. The termination of all of the employees is a reportable event that will result in full vesting for all participants who have terminated employment and don't yet have 5 consecutive breaks in service.

The problem with your approach is that you had a choice: (1) either do a final valuation for a short plan year ended 05-15-07 (thus prorating the limitations for the year) and distribute the assets, or (2) do a valuation as of 12-31-2007. You chose the second and no language in the statute nor in your plan document permits you to pro-rate compensation and hours under the plan for a regular plan year.

The harder question: Are you within the amendment period for amending the plan year to a short plan year for 2007 (to May 31st?) with 5500s due 12-31-07? Is such an amendment even "remedial" in nature?

I believe that it is now time to consult the plan's legal counsel for clarification.